Huge loss for small caps
The Russell 2000 (NYSE: IWM) and the other major U.S. indices fell hard today on news of bad economic reports and Bernanke’s congressional testimony. The small-cap index let go 19.34 points, or 2.76%, to 680.57, its lowest level in more than one year. The Dow Jones Industrial Average (INDU) fell 306.95 points, or 2.46%, to 12,159.21.
On a year-to-date basis, the Russell 2000 is down 11.16%, while the Dow has deteriorated 8.33% and the S&P 500 has lost 9.20%.
Stocks small and large plunged today on more fears about the sad state of the U.S. economy.
“Incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and that the downside risks to growth have become more pronounced,” U.S. Federal Reserve chairman Ben Bernanke told Congress today. “In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary.”
“We believe the Fed will be aggressive in cutting the Federal Funds rate in a series of 50 basis point cuts, starting with one on January 30th,” said Arun Raha, vice president of Economic Research and Consulting for the North American operations of reinsurance company Swiss Re, in an email.
But investors focused on the grim economic picture and allowed the bears to completely dominate trading. Equities actually began the session with modest gains but were quick to lose their grip.
Bernanke’s testimony coincided with the release of the Federal Reserve Bank of Philadelphia’s general economic index, which showed that the region’s manufacturing activity contracted more than forecast in January.
New orders fell sharply, while shipments and employment posted modest declines.
“This is consistent with the slowdown that we have witnessed in manufacturing since the middle of last quarter,” commented Raha. “The only bright spot for manufacturers is growing export demand due to the weak dollar, but it has not been enough.”
There was economic news before the start of trading as well, coming in the form of a report by the U.S. Census Bureau that housing starts fell a more-than-expected 14% in December, while building permits declined 8.1%.
Despite the low number of housing starts and the fact that 2007 saw the worst one-year decline in nearly 30 years, Raha sees a ray of hope.
“The problem in the housing market is an overhang of unsold homes, and the fewer new homes we add to the inventory, the less we exacerbate the problem and the sooner we'll see a recovery,” he said.
Meanwhile, the ripple from the stagnating housing sector continues to claim casualties.
Merrill Lynch & Co., Inc. (NYSE: MER), the world’s largest brokerage, reported the biggest quarterly loss in its history due to losses related to subprime mortgages. Recently appointed CEO John Thain warned that there could be more writedowns in the future.
Separately, the U.S Labor Department announced that initial jobless claims for the week ended Jan. 12 decreased 21,000 to 301,000, from the preceding week’s unrevised figure of 322,000.
Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• Stoneridge, Inc. (SRI), up 32% to $9.39 on news that it raised its full-year 2007 earnings guidance.
• XTENT, Inc. (XTNT), up 15% to $9.76.
• Avatar Holdings Inc. (AVTR), up 12% to $41.15.
Biggest percentage losers:
• Ambac Financial Group, Inc. (ABK), down 52% to $6.24 on news of a possible analyst downgrade.
• Perini Corp. (PCR), down 27% to $27.65 on news it has received a loan default notice.
• LMI Aerospace, Inc. (LMIA), down 20% to $17.66.
Volume leaders:
• Ambac Financial Group, Inc. (ABK) 62,712,100 shares traded.
• Radian Group Inc. (RDN) 7,631,700 shares traded.
• The PMI Group, Inc. (PMI) 6,553,700 shares traded.
The day saw 198 small-cap stocks set 52-week lows, while two small caps established a 52-week high.
